In all the excellent commentary on the threatened cuts to social security, one issue hasn't been clearly addressed: why the obsession with social security as important to balancing the budget and reducing the deficit? As a long time observer of Social Security (SS) with some background in the area, I wanted to offer my thoughts.
The puzzle is that, officially SS is solvent for a long time and does not contribute to the deficit, so why the obsessive focus on cutting it? And how can SS be a problem with the deficit if it is fully funded? A little simple math from the official Social Security Administration (SSA) website shows the answer. In 2013, for the first time since 1984, all programs of the SSA are expected to pay out more than the SSA is taking in in payroll taxes. This means general obligation funds of the government will be used SSA obligations in 2013, 2014 and beyond. How is that possible if SS is fully funded? The answer is that the SSA is responsible for SS and Supplemental Security Income (SSI). SSI is a means-tested collection of programs that do not have a dedicated funding stream. So SSI is paid out of the general revenues of the government. This was historically not a big deal because SS is taking in extra money and some of this surplus could easily cover the SSI payments. However trends in increasing SSI and reduction in SS surplus have resulted in the current situation where SS + SSI costs more than the funds received from payrolls. This means that SSA, itself, does not have enough to pay the total obligations of SSA and, for the first time in almost 30 years, the SSA will be taking funds from the general revenues of the US. In other words, SSA programs (other than SS) will be contributing to the deficit and will be partially supported by taxpayers (even though the SS piece is solvent).
In pointing this out, I am not arguing that SS should be cut or that I agree with the proposed changes. I actually favor expanding SS and allowing Medicare for everyone. But I think it is important to lay out the facts about the total SSA payouts because it helps to make sense of all the noise you are hearing about whether SS is truly in crisis. To see the numbers from the SSA website, follow me below the squiggle:
The starting point to understand the revenues and payments of SS and other programs is to go to the official SSA documents at their website. The key figures are all in the document called "Key Tables, Apr. 2013" on the Budget page of the SSA:
Key Tables, Apr. 2013 (from SSA Budget page)
The familiar numbers about the payroll taxes we pay and the resulting payments to our grandparents are found in Table 4. Total Income and Outlays by year (combing the two parts of SS: Old Age Survivor Income and Disability Insurance) are estimated as follows (in millions):
2012 2013 (Est.) 2014 (Est.)
OASI + DI Outlays 773,363 818,308 865,544
OASI + DI Income 837,945 851,403 884,983
Obviously, this is not a program that contributes to the deficit as it brings in more than it costs for the next few years at least. Depending on whether the economy picks up before there are extra retirements or increased disability claims, it is not clear how long before this program will have a shortfall. But there is no doubt that it does not right now, as everyone on this site is well aware.
Where this issue gets a bit clouded is when we add in the other obligation of the SSA, which is the SSA payments. The SSA website has all the figures clearly laid out in Table 3 which shows all SSA outlays (in millions):
2012 2013 (Est.) 2014 (Est.)
OASI + DI Outlays 773,363 818,308 865,544
SSI 50,680 57,089 59,984
Misc. other items 0 0 181
Total SSA Outlays 824,043 875,397 925,709
If we then compare the total outlays to the income, we have the following:
2012 2013 (Est.) 2014 (Est.)
OASI + DI Income 837,945 851,403 884,983
Total SSA Outlays 824,043 875,397 925,709
--------- -------- ---------
Surplus (Deficit) 13,902 (23,994) (40,726)
What the above shows is that, overall, the SSA will need to draw about $24 billion from the general revenues of the U.S. in 2013 and $40 billion in 2014. Future years will escalate from there depending on benefit levels, the economy, etc.
The fact that the SSA is short overall actually does not mean a thing for OASI + DI, as they are fully funded now and there is a giant trust fund ($2.7 trillion) that can be tapped to pay these obligations. So SS itself is not really the issue. But, if the SSA projections are correct, there is no disputing that the SSA will be contributing to the deficit this year and from this point forward. And the reasons for this spending is SSI, a true "welfare" program that is designed to help the poorest and sickest amongst us. (From wikipedia: "Supplemental Security Income (or SSI) is a United States government program that provides stipends to low-income people who are either aged (65 or older), blind, or disabled.")
The point of this diary is to show that there actually is a reason for linking "social security" with the deficit and welfare. It is that SSI, a program that is the responsibility of the Social Security Administration, is now contributing to the deficit because its funding has always been disguised by the SS surplus. To some extent, it is a major change that the SSA will be asking for public money for the first time since SS was "saved" by Tip O'Neill and Saint Ronald Reagan almost thirty years ago. I do not think it changes the current debate in any substantive way really, I just think that not everyone realizes why SS is suddenly an important issue. As there is probably no political support for cutting SSI, one solution to reduce the impact of SSI is to try to increase the SS surplus to cover SSI. For example, reducing expected payments under OASI (by chained CPI) would be one possible solution. I do not agree at all with this approach, but perhaps the issue outlined in this diary helps explain some of the urgency to cut social security benefits.